| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent strategic move by a leading player in the electricity distribution products sector is set to significantly enhance its long-term earnings trajectory. The company has announced conditional agreements to acquire a substantial equity interest in two related entities, a move anticipated to be broadly earnings neutral in the near term but profoundly positive for future financial performance.
The acquisition involves a 49.0% equity interest in both Tenaga Kenari Sdn Bhd (TKSB) and Tenaga Kenari Marketing Sdn Bhd (TKMSB) for a total cash consideration of RM16.7 million. This will grant majority board control, with vendors providing a cumulative profit after tax guarantee of RM12.0 million over fiscal years FY26-FY28. Additionally, the acquiring company has call options to further increase its effective interest to 51.0%. The transaction, which will be funded through internally generated funds and/or bank borrowings, is expected to conclude by March 31, 2026.
Analyst’s Perspective
Analysts view the acquisition as a reasonable and strategically sound decision. The transaction is cash-settled and valued comparably to sector peers. While it is expected to be largely earnings neutral for the upcoming fiscal year (FY26f net profit is projected to remain at RM20.7 million), the consolidation is anticipated to significantly improve the company’s financial metrics in subsequent years, with the consolidated FY27f Price-to-Earnings (PER) ratio expected to dip to 11.5x.
Strategic Rationale and Future Outlook
The acquisition is poised to de-risk the group’s long-term earnings trajectory, which has historically been characterized by volatility due to its project-based nature and back-loaded revenue recognition. By integrating TKSB and TKMSB, the company is strategically positioning itself for stronger, more consistent long-term earnings from FY27f onwards.
In light of the anticipated post-acquisition contributions, financial forecasts have been substantially revised upwards. Earnings per share (EPS) forecasts for FY27f and FY28f have been raised by 55.5% and 14.9% respectively. Consequently, the investment bank has revised its target price upwards, reflecting the full consolidation and a higher implied valuation post-acquisition. The previous target price had already been achieved.
Recommendation
Given the strong earnings growth potential and strategic benefits of the acquisition, the investment bank maintains a BUY recommendation on the stock.
